Agrifood safety standards, market power and consumer misperceptions

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This paper analyzes how the implementation of a food safety standard affects firms' strategic behaviour within the context of a food chain. We provide a formal analysis, which considers that the sanitary risk results from a strong heterogeneity of upstream production conditions and the final demand depends on consumers' risk estimations (given that consumers may underestimate or, conversely, overestimate the sanitary risk). We show how downstream (processing or retailing) firms may be prompted to play a positive role with respect to food safety, either by selecting only the safest upstream producers or by encouraging the improvement of suppliers' production conditions. When the degree of consumers' risk misperception is relatively low, then a downstream firm may adopt the latter strategy and increase the marketed quantities as the food safety standard is improved. However, we show that the actual contamination risk is not necessarily decreasing in the level of the food safety standard.

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